Numbers game

Neustar fights to retain contract that represents about half its revenue

When Americans change phone providers, we don’t give a second’s thought as to how — or even if — we’ll be able to transfer our old phone numbers to the new provider. We just take for granted that it will happen — instantaneously.

Since 1997 that technical feat has been the product of the Number Portability Administration Center (NPAC), which was established and is managed by Sterling-based Neustar, a corporation with about half of its 1,600 global employees located in Washington, D.C., and Northern Virginia. (The Washington Post ranked Neustar No. 18 in its 2014 list of 150 Top Workplaces employing more than 500 people in the D.C. area.)

In early June, however, the Federal Communications Commission accidently leaked documents showing that Neustar is in danger of losing the $450 million annual number portability contract to Telcordia, a division of Swedish telecommunications giant Ericsson, which provides number portability services for India. The contract makes up about half of Neustar’s annual revenues.

Neustar and Telcordia have levied accusations against each other about improprieties in the bidding process for the contract. (Neustar’s current contract is set to expire at the end of June 2015.)

Financial and technology analysts have said they’re worried about the possibility of a “Big Bang Implementation” scenario in which Telcordia would have to build a new system from scratch, which they say could result in service headaches for consumers and major problems for smaller telecommunications carriers.

A report prepared in January by information technology analysis firm The Standish Group predicted that a transition from Neustar to Telcordia would almost definitely not be implemented in time and that “over 60 percent of the customers will have service delays and struggle with the migration and integration. … It is highly likely a new vendor would need to cut out steps and efforts, such as comprehensive testing, to reduce cost and time. In essence, to be successful, a new vendor would need to re-create 17 years of systems development and services within 15 months.”

Standish wrote that “Over the last 17 years Neustar has not only delivered new functionality but also optimized both the new functionality and the level of service to meet the needs of the industry. By Neustar adopting a more iterative style of development and delivery, the telecom industry has increased the value of their investment.”

The D.C.-based Competitive Carriers Association, which represents smaller telecom providers across the nation, wrote a letter to the FCC in March, expressing concerns about the possible transition and its impact on smaller carriers in particular.

“Competition in the telecommunications marketplace depends on consumer confidence in the ability to seamlessly move between carriers — and among wireline, wireless and VoIP [Voice over Internet Protocol] carriers — without changing telephone numbers,” wrote Rebecca Murphy Thompson, the association’s general counsel. “Absent that assurance, consumers will hesitate to switch carriers, even when an alternative carrier offers lower prices and better services.

A spinoff of Lockheed Martin Corp., Neustar was established to create and run the NPAC and has been awarded the contract four previous times without any competition. When it was publicly announced in January that Telcordia was competing for the contract, financial analysts were caught by surprise, says John F. Bright, director and senior research analyst with Avondale Partners LLC.

Moving to Telcordia could open up the United States’ telecommunications network to security concerns, Bright postulates, given the fact that “a foreign entity [Ericsson] will control all the phone numbers in the United States.”

There also are questions about neutrality. Ericsson manufactures telecommunications equipment and Bright ponders whether Telcordia would be in the position to offer better number portability service to companies that purchase from Ericsson.

It would be in the best interest of consumers, national security and U.S. telecommunications companies if the FCC allowed Neustar to submit a lower bid than Telcordia, Bright says.

Speaking on behalf of Neustar, John Buckley with The Harbour Group based in Washington, D.C., says “Neustar has built the global standard in local number portability and number management. There is no country on Earth that has a system as robust and as beneficial to consumers and small carriers as the U.S. system. Ericsson has managed significantly less sophisticated number portability [in India] … There is no comparing their performance with what Neustar has done over 17 years of flawless service.”

The transition process “is fraught with uncertainty,” Buckley says, and it will have more of an impact on smaller carriers because “the NPAC does much more than the simple porting of telephone numbers. It is actually the single database that is used by thousands and thousands of telephone carriers around the country not just to manage number porting but to manage their database of telephone numbers. All of their information is coordinated and communicated through the NPAC.”

Larger carriers such as AT&T and Verizon maintain their own networks and databases based on data from NPAC, but smaller carriers often rely heavily on Neustar’s suite of services for managing networks and phone number databases, Buckley says.

The drama over the NPAC contract started last year. The contract process is overseen by the North American Portability Management LLC and the North American Numbering Council, groups made up largely of representatives from major telecom corporations such as Verizon, T-Mobile and AT&T. The final contract goes to the FCC for approval. In June, the FCC announced that the North American Numbering Council unanimously recommended that the contract be awarded to Telcordia. Neustar stock fell 8.4 percent the day of the announcement.

Neustar submitted its bid by the April 5, 2013, deadline, but Buckley says that on April 17 the deadline was “mysteriously” extended until April 22, to allow Telcordia to finish its proposal. (An argument bolstered by the fact that Neustar dug up information from a Telcordia employee’s Facebook status showing that the employee was still working on the contract bid on April 5 and had been working for “66 straight hours” on the proposal.)
Additionally, Buckley says, Neustar expected to be able to submit revised lower bids during the contract selection process, but the North American Portability Management rejected a revised bid from Neustar last October.

An attorney for Telcordia alleged in a letter to the FCC this February that Neustar had submitted the revised bid based on illegal insider information. The FCC has said it was looking into the complaints, which Buckley has dismissed as “mudslinging” by Telcordia. (Representatives for Telcordia could not be reached for comment for this story.)

The FCC ended a comment process for the NPAC contract in July, and it’s unclear when the actual contract may be awarded, since the FCC has delayed or missed several dates, Buckley says. It could be well into 2015 before the situation is resolved, as Neustar vows to continue fighting for the contract.